ENTREPRENEURSHIP 1 4.08
ACQUIRE FOUNDATIONAL
KNOWLEDGE OF CHANNEL
MANAGEMENT TO UNDERSTAND ITS
ROLE IN MARKETING
3.07A Explain the nature and scope of channel
management
WHAT IS A…
Channel: A path through which goods and
services flow in one direction (from vendor to the
consumer), and the payments generated by them
that flow in the opposite direction (from
consumer to the vendor).
 Channel length is the total number of channel
members in a channel of distribution
 Exclusive distribution is a distribution pattern
in which a producer sells a product through just
one middle man in a geographic area

WHAT IS…
Selective distribution is where a producer sells
a product through a limited number of
middlemen in a geographic area (Target or
Mass?)
 Intensive distribution is where a producer
sells a product through every available
wholesaler and retailer in a geographic area
where consumers might look for it (Target or
Mass)
 Channel members are business or individuals
who assist in moving goods and services from the
producer to the consumer

CHANNEL FUNCTIONS

Providing marketing information:
Companies rely on market research to determine
their target markets’ needs and wants
 Ex: small business producing handmade greeting
cards


Promoting products:
Can be expensive
 Retailers often take a large portion of promotion
responsibilities


Ex: local supermarkets/discount stores
CHANNEL FUNCTIONS

Negotiating with the customers:

Different prices are paid by the wholesaler, retailer
and consumers based on negotiation
Physical distribution
 Financing and risk taking:

Moving products through a channel costs money
 When channel members work together to finance
activities and to assume financial risks, channels will
be more effective

EXPLAIN KEY CHANNEL TASKS

Providing marketing information


Promoting products


Rely on market research to determine their target
markets’ needs and wants
Costs and responsibilities can be shared
Negotiating with customers

Offering to deliver and install products
EXPLAIN KEY CHANNEL TASKS

Reducing discrepancies


Selling large quantities of products to wholesalers
and retailers
Financing and risk-taking

Work together to finance activities to become more
effective
WHEN A CHANNEL IS MOST EFFECTIVE

The channel must be properly managed


Recognize the importance of their task and make
informed decisions
Channel members share a common goal
Commitment to quality of the product
 Satisfying the target market’s needs and wants


Channel members must share tasks

Tasks should be assigned to the members who can
perform them best
HORIZONTAL AND VERTICAL CONFLICT

Horizontal Conflict: occurs between channel
members at the same level
Good, old-fashioned business competition
 Ex: two retailers selling pet supplies compete to sell
to the same target market(PetSmart and Pet
Supermarket)


Vertical Conflict: occurs between channel
members at different levels within the same
channel

Producers and wholesalers or producers and retailers
(West Produce and Sams Club) (Stewarts Produce
and IGA)
CHANNEL MANAGEMENT DECISIONS

Setting channel objectives





Determine what the company is trying to achieve
Meet the needs and wants of their target market
Give their product a competitive edge
Indirect distribution: middlemen
Direct distribution: dealing with the final
consumers directly
CHANNEL MANAGEMENT DECISIONS

Determining distribution patterns

Achieve ideal market exposure (make their product
available without over exposing and losing money)

To achieve market exposure, marketers must determine
distribution intensity
Intensive distribution: selling a product through
every available wholesaler and retailer in a
geographic area where consumers might look for it
Used when trying to reach the greatest number of
customers possible (ex: convenience items – gum)
(mass marketing – light bulbs)

CHANNEL MANAGEMENT DECISIONS
Selective distribution: selling a product through
limited number of wholesalers and retailers in a
geographic area (high-end clothing manufacturers)
(target marketing)
 Exclusive distribution: selling a product through
one middleman in a geographic area. Used to
maintain tight control over a product. (specialty
products – airplanes, large machinery)

CHANNEL MANAGEMENT DECISIONS

Selecting channel members
Determine the types of members the belong in the
channel, as well as the channel length (total
number of channel members)
 Usually based on the nature of the product
(perishable vs non pershible)
 Factors to consider:

Create product value that others cannot or are not willing
to provide
 Channel the product to its desired market
 Have a pricing and promotion strategy compatible with the
product’s needs
 Offer customer service compatible with the products needs
 Be willing and able to work cooperatively with other
members within the product’s channel

CHANNEL MANAGEMENT DECISIONS CONT’
 Determining

channel responsibilities
Members must work together appropriately
and perform the tasks they are best suited for
 Managing,
motivating, and
monitoring channel members

Marketers should constantly evaluate the
channel
 What is working?
 What is not working?
 What can be improved?
CHANNEL MANAGEMENT DECISIONS CONT’

Motivation can be positive or
negative
Sanctions may be imposed on middlemen not
performing well
 Chargebacks – financial penalties assessed
for a variety of problems
 Incentives may be offered for reaching
performance goals

CHANNEL DESIGN DECISIONS
Analyzing customer needs
 Setting channel objectives
 Identifying major alternatives

Types of intermediaries
 Number of intermediaries
 Responsibilities of intermediaries

HOW CHANNEL MEMBERS ADD VALUE
Every channel member should add value to the
product as it moves through the channel
 Adding value to the product benefits all channel
members
 Being able to perform one or more activities
needed to get the product to the final consumer
 Ex: Retailers may create exciting visual displays
in their stores to promote a product


By performing this task, retailers can add value to
the product and benefit every member in the channel.
RELATIONSHIP BETWEEN PRODUCT
DISTRIBUTION AND DISTRIBUTION PATTERNS